The application of marketing in air service of vietnam airlines 40

List of Charts and tablesTable 2 1: Vietnam Airlines' competitors 23 Table 2 2: Market Share of Vietnam Airlines 30 Table 2 3: Key competitors and competitive strategies 34 Table 2 4: Ro

THE APPLICATION OF MARKETING IN AIR SERVICE OF VIETNAM AIRLINES

TABLE OF CONTENTS

ACKNOWLEDGEMENT III

LIST OF ABBREVIATIONS IV

LIST OF CHARTS AND TABLES V

INTRODUCTION VI

CHAPTER 1: AN OVERVIEW OF AIR SERVICE MARKETING 1

1 1 WHAT IS AIR SERVICE MARKETING? 1

1 1 1 Special features of air service 1

1 1 1 1 Intangibility 1

1 1 1 2 Inseparability 2

1 1 1 3 Heterogeneity 2

1 1 1 4 Perishability 3

1 1 1 5 Lack of ownership 3

1 1 2 Service and Marketing service 3

1 1 3 Marketing in air service 4

1 2 PROCEDURES OF DOING AIR SERVICE MARKETING 5

1 2 1 SWOT analysis 5

1 2 1 1 Strengths 5

1 2 1 2 Weaknesses 6

1 2 1 3 Opportunities 6

1 2 1 4 Threats 7

1 2 2 Doing market research 7

1 2 2 1 Finding out customers needs and wants 7

1 2 2 2 Segmenting markets 8

1 2 2 2 1 What is market segmentation? 8

1 2 2 2 2 Benefits of Segmentation 8

1 2 2 2 3 The process of Segmentation 9

1 2 2 3 Targeting market 10

1 2 3 Working out marketing mix strategies 11

1 2 3 1 Product Strategy 11

1 2 3 2 Price Strategy 13

1 2 3 3 Place Strategy 13

1 2 3 4 Promotion Strategy 14

1 2 3 5 People Strategy 17

1 2 3 6 Physical Evidence Strategy 18

1 2 3 7 Process Strategy 19

CHAPTER 2: ASSESSMENT OF THE APPLICATION OF MARKETING IN AIR SERVICE OF VIETNAM AIRLINES 20

2 1 AN OVERVIEW OF VIETNAM AIRLINES 20

2 1 1 Vietnam Airlines’ history 20

2 1 2 The status of Vietnam Airlines in the Region 23

2 2 THE APPLICATION OF “MARKETING IN AIR SERVICE” OF

VIETNAM AIRLINES 27

2 2 1 Studying Marketing environments 27

2 2 2 SWOT analysis 29

2 2 2 1 Strength 29

2 2 2 2 Weaknesses 31

2 2 2 3 Opportunities 32

2 2 2 4 Threats 33

2 2 3 Doing market research 35

2 2 3 1 How does Vietnam Airlines find out the customers’ ne eds and wants? 35 2 2 3 2 Market Segmentation 37

2 2 3 2 1 Broad Segmentation 37

2 2 3 2 2 Needs-based segmentations and segment identifications 38

2 2 4 Targeting Markets of Vietnam Airlines 39

2 2 5 Marketing Mix Strategies 40

2 2 5 1 Product Strategy 40

2 2 5 2 Price Strategy 46

2 2 5 3 Place Strategy (Distribution Network) 47

2 2 5 4 Promotion Strategy 49

2 2 5 5 People Strategy 53

2 2 5 6 Process Strategy 54

2 2 5 7 Physical Evidence strategy 54

2 2 6 Evaluation 55

2 2 6 1 Achievements 55

2 2 6 2 Drawbacks 57

CHAPTER 3: MARKETING SOLUTIONS TO IMPROVING VIETNAM AIRLINES’ SERVICE 60

3 1 MARKETING SOLUTIONS 60

3 1 1 Diversification and improvement of the quality of Vietnam airlines 60

3 1 2 Enhancement of air service marketing and promotion activities 61

3 2 RECOMMENDATIONS 62

3 2 1 For the Government 62

3 2 2 For Vietnam Airlines 64

  Company interview (Directly) 65

Questionnaire 66

CONCLUSION 71

APPENDIX 76

This thesis would not have been made possible without the help from

many wonderful people who gave their supports in different ways To them

I would like to express my deepest gratitude and sincere appreciation

First of all, I am deeply indebted to my supervisor Asso Prof , Dr Do

Thi Loan, a senior lecturer and the Dean of the Post Graduate Studies

Faculty of Hanoi Foreign Trade University, for her valuable instruction,

corrections, comments, suggestions and enthusiasm during the development

of my graduation thesis Her guidance and encouragement have been

invaluable to me and she will always be remembered as the key factor that

influenced my career towards this path

Second, I am especially grateful to the lecturers of the English Faculty

who provided me with a basic knowledge that is absolutely important in

writing the thesis

I would also like to extend warmest thanks to all staff of the Vietnam

Airlines and the Civil Aviation Administration of Vietnam (CVVA) who

supplied me with valuable data

Third, throughout my hard working days, I was blessed with a great deal

of support from my family I am forever thankful to my admired parents for

their love, understanding, and endless patience and for supporting me in all

my endeavors

Finally, my last thanks go to all my classmates and former BBE

graduates of the Foreign Trade University, for their encouragement and

support whilst I was working on the completion of this work

List of abbreviations

SWOT

ATL

BTL

:Strength, weakness, opportunity, threat

:Above the line

:Below the line

: World Trade Organization

: Serve Acute Respiratory Syndrome

:Ho Chi Minh City

:Audio/Video on demand

:Round the world

:Vietnam Football Federation

:The United Stated of America

Technological

Association

CRS

GPS

:Computer Reservation System

:Global Distribution System

List of Charts and tables

Table 2 1: Vietnam Airlines' competitors 23 Table 2 2: Market Share of Vietnam Airlines 30 Table 2 3: Key competitors and competitive strategies 34 Table 2 4: Roundtrip prices 39

Vietnam Airlines market survey 44 Table 3 1: Action plan for 2006 62 Chart 3 1: Good aspects of Vietnam Airlines’ service 67 Chart 3 2: Aspects which VNA needs improving 68 Chart 3 3: Passengers’ Favorite Airlines 70

1 Why I choose this topic

The sixth Party Congress marked a turning point in the process of

economic development of our nation The country’s reform that began in

the late 1986s and started generating results in the early 1990s created

breakthrough changes in attitudes towards economy and what constitutes a

modern state What Vietnam has gained from the Doi Moi process is

practically immeasurable More important than any other things, however,

is that the most significant achievement over the last 20 years was that

Vietnam has successfully changed from its centrally planned economy into

a socialist-oriented market economy

Thanks to the renovation process and the open door policies of recent

years, Vietnam’s tourism and civil aviation industries have grown rapidly

and recorded encouraging successes Tourism development has helped the

air industry to grow, and the development of the air industry ensures an

important means of transport for tourism The number of foreign visitors to

Vietnam in the past few years has continued to increase, and those arriving

by air account for well over 50 percent of them

At present, the concept of marketing has been widely applied in

manufacturing sector in Vietnam Nevertheless, the concept of marketing

service in general and marketing air service in particular are quite new In

fact, many services industries such as airlines have traditionall y applied

marketing to their operations less than manufacturing firms It cannot be

denied that marketing is an important activity for any business that wishes

to become and remain competitive and successful This is certainly thecase in the rapid changing airlines industry, especially Vietnam Airlines

However, there remains much room to improve in the application of

marketing to air service of Vietnam Airlines This is the reason why I

choose this topic for my graduation thesis in the hope of making some

recommendations to improve the efficiency of Vietnam Airlines

2 Research Methodology

- Collecting data primary from doing field research, direct interviews

and surveys in Vietnam Airlines and secondary data from text books and

reference books concerned

- Using different methods for study, comprising of analysis,comparison and generalization

- Analyzing based on the marketing rules, processing and summarizing

the collected data

- Using online survey via email

3 Focus of the study

The focus of the thesis is on theoretical framework of marketing service

and marketing air service and the assessment of the application of

marketing air service strategy of Vietnam Airlines

4 Structure of the thesis

Apart from the introduction and conclusion, the thesis is divided into

three chapters:

Chapter 1: An overview of air service marketing

Chapter 2: Assessment of the applications of marketing in air service of

Vietnam Airlines

Chapter 3: Marketing solutions to improving services of Vietnam

Airlines

CHAPTER 1

An overview of air service marketing

Since 1980s, in the UK more people are employed in the service sectorthan in all other sectors of the economy put together It is the same in theUSA and in most Western economies In Britain, income from servicescontributes more than any other sectors to the Gross National Product, andincome from selling services overseas, called ‘invisible earnings’ plays anincreasingly important role in the balance of trade Since that time, servicehas grown considerably and has received much attention There are anumber of factors which make services different from physical goods Marketing applied in service including has developed accordingly

1 1 WHAT IS AIR SERVICE MARKETING?

1 1 1 Special features of air service

Unlike goods, services in general and air service in particular cannot beseen, touched, smelt, tasted, tried on for size or stored on a shelf They areintangible Services own some special features that often have a significanteffect on marketing strategies These features of services result in

marketing mix decisions that are substantially different from those relating

to the marketing of goods It must be concerned with factors such as

intangibility, inseparability, perish ability, heterogeneity and ownershipwhen implementing marketing strategy

1 1 1 1 Intangibility

Air services are intangible, that means services cannot be seen, tasted,felt, heard or smelt before the purchase decision Some marketing authorseven say that the basic difference between goods and services is the

intangibility Air services do not have real, physical presence as a productdoes For instance, prior to boarding an airplane, airline passengers havenothing but an airline ticket and the promise of safe transportation to their

destination Although services are intangible, the experience customers

obtaining from the service has an impact on how they will perceive from

What can the customers achieve from the customer service? The answer is

the location, the inner presentation or the environment of where they are

purchasing the service? In fact, a professional working environment, the

hearty welcome of the staff or even the security of the airline will provide

cues as to how well it is run

1 1 1 2 Inseparability

The production and consumption of services are inseparable Inseparability means that the consumers have direct experience of the

production of the service The task of satisfying customers for the provider

of a service is in many ways much more difficult than it is for the

manufacture of a product In service industries everything has to be right

from first time, all the time, any mistake can prove very costly in terms of

losing customers To take advantage of a bus service, both you and the bus

must make the journey at the same time Air service is similar, in most air

services; both service providers and the customers must be present for the

transaction to occur Customer-employees are part of the product The

simultaneous occurrence of production, purchase and consumption of some

services contrasts starkly with the lengthy time scale which can separate

the production, purchase and consumption of a product

1 1 1 3 Heterogeneity

Products are often made in batches while services are never identical

The human element ensures that services will be highly heterogeneous,

which simply means varied There are so many aviation firms within nation

but how the customers choose among them? In traveling by plane the

service quality may differ from the first time you traveled by that airline to

the second, because the airhostess is more or less experienced Thus, there

are several causes of variability First of all, services are produced and

consumed simultaneously, which limits quality control Secondly, the high

degree of contact between the service providers and the guests means thatproduct consistency bases on the service providers’ skills and performance

at the time of exchange Variability of services poses challenge to themarketing staff in service sector in general and in aviation in particular

1 1 1 4 Perishability

Services last a specific time and can not be stored like a product forlater use In addition, with some services, there is fluctuating demand thatmay make perish ability features more serious Key decisions have to bemade on what maximum capacity level should be available to cope withdemand Moreover, attention has to be paid in times of low levels of

usages Short-term policies such as different pricing, special promotionswill be adopted to deal with fluctuations in demand

1 1 1 5 Lack of ownership

Ownership is not available in service since customer can not own andstore service like a product When a consumer buys a service he does notusually receive ownership of anything intangible Services are used or hiredfor a period of time Buying an air ticket to Australia, say, the service willprolong within 13 hours but the customers want and expect excellentservice for that long journey Air service buyers are therefore buying onlyaccess to the air plane or use of seats on the plane

1 1 2 Service and Marketing service

In general meaning, a product is something that is developed,

manufactured, grown or extracted in exposure to the use of the buyer Aservice, on the other hand, is a non-material equivalent of a good Serviceprovision has been defined as an economic activity that does not result inownership, and this is what differentiates it from providing physical good It’s claimed to be a process that creates benefits by facilitating a change incustomers, a change in their physical possessions or a change in theirintangible assets The standard definition of a service is that provided by

the American Marketing Association, which says: “Services are activities,

benefits or satisfactions which are offered for sale or are provided in

connection with the sale of goods” Then William Stanton modified this

definition to: “Those separately identifiable, essentially intangibleactivities which provide want satisfaction and which are not necessarily

tied to the sales of a product or another service To provide a service may

or may not require the use of tangible goods However, when such use is

required, there is no transfer of the title to those tangible goods” And how

about marketing these services?

There are different marketing service definitions by many famous

economists such as Philip Kotler- John Bowen James Makens define

marketing service as “ a social and managerial process by which

individuals and groups obtain what they need and want through creating

and exchanging products and value with other” In addition, according to

American Marketing Association, marketing service is defined as: “An

organizational function and a set of processes for creating, communicating

and delivering values to customers and for managing customerrelationships in ways that benefit the organization and its stakeholders”

Thus, it can be said that marketing service refers to the marketing of

activities and processes rather than objects, creating benefits and values to

customers

1 1 3 Marketing in air service

Marketing in air service is part of marketing service bearing the

characteristics of marketing service Some aspects of air service marketing

can be described as “consumer marketing”, in the sense that they are

targeted at the individual or the family group Marketing an air service

means converting available seats into revenue seats It is the revenue

producing side of the air carrier operating statement; it interacts

horizontally across any departments and vertically through all the tiers of

the organizations In order to be globally known, an airline has to

determine passengers’ needs and wants, formulate strategies and providetotal customer satisfaction collecting in the same time feed back on itsperformance The marketing objective is to create value for a potentialticket buyer in open competition with similar offerings In the airline

industry, the value is created through corporate and brand image For thisreason, airlines invest huge sums of money in corporate advertising anddeveloping brands which tend to distinguish from others

1 2 PROCEDURES OF DOING AIR SERVICE MARKETING

1 2 1 SWOT analysis

SWOT analysis is a very necessary step that can not beskipped It is regarded as an evaluation of the existing of any industry

SWOT stands for Strengths, Weaknesses Opportunities and Threats By

studying and analyzing SWOT, the company will have useful data to workout optimal marketing strategies

competition in the market

To analyze the strengths of an air service, ask the following questions The answers will indicate the sources of strength

 Does the air service have strong brands?

 Is the air promotion effective?

 How has the air service withstood international competition?

 What can the air service do better than any others?

1 2 1 2 Weaknesses

Every organization has Weakness In some cases, this is obvious; say,for example, a stricter regulatory environment In other cases, it is a matter

of perspective, for example, a company has 99% market share and is open

to attack from every new player For instance, the weakness of Thai

airways is based on schedules of Thai airways International and transitflights of two different airlines does not have advantage as operating planes

of one airlines, or because of geographical position of airports, Malaysiaairlines is not convenient to have transit flights to Cambodia

To analyze the weaknesses of a company, ask the following questions The answers will indicate the sources of weakness

 Is the air promotion effective?

 Will the air service be able to stand price pressure from

To analyze the opportunities for a bank, ask the following questions The answers will indicate the opportunities

 What is the competitive position of the air service?

 Can the air service spread its wings internationally?

 Can the quality of operations, services management be improvedwithout incurring serious cost?

To analyze the threats, ask the following questions The answer willindicate the threats

 Are international competitors eating away market share?

 Are employees adequately trained and motivated?

 Is the air service spread too thin?

Successful SWOT analysis should follow simple rules First, it isrealistic about the strengths and weaknesses of the organization Second,analysis should distinguish between where the organization is today andwhere it could be in the future Third, the analysis is specific, short andsimple Fourth, it is necessary to analyze in relation to other competitors

1 2 2 Doing market research

1 2 2 1 Finding out customers needs and wants

Any firms or organizations in general and air service in particularwishing to achieve a profitable and durable penetration of a market mustbase on its marketing strategy upon a thorough understanding of customerneeds and wants Studying customers’ desire is so important for everybusiness and firms First of all, it can help the manager establish the basicrequirements of their customers and then assist them in modifying theirproduct specification as circumstances change Secondly, it will assist them

in decision-making in a route-based context Customers’ needs are to get to

the right destination safety and on time, to be served well, quickly andenthusiasticall y Therefore, basing on the study of customers’ desires,airline firms day by day design travel products and services that satisfycustomers Better understand customers’ needs and wants will bring

success for airline firms

1 2 2 2 Segmenting markets

1 2 2 2 1 What is market segmentation?

The variation in customers’ responses to a marketing mix can be traced

to differences in buying habits, in ways in which the good or service isused, or in motives for buying Customer-oriented marketers take thesedifferences into consideration but they can not afford to design a differentmarketing mix for every customer Consequently, most marketers operatebetween the extremes of one marketing mix for all and a different one foreach customer To do so involves market segmentation, a process of

dividing the total market for a good or service into several smaller,

internally homogeneous groups The essence of segmentation is that themembers of each group are similar with respect to the factors that influencedemand A major element in a company’s success is the ability to segmentits market effectively

Deferential pricing based on the elasticity of different marketssegments allows airlines to capture more revenue that could be

achieved using a single fare set at a higher level than the more price elastic segments of demand would be prepared to accept

-1 2 2 2 3 The process of Segmentation

Markets are sometimes segmented intuitively, that is, a marketer relies

on experience and judgment to make a decision about the segments thatexist in a market and how much potential each offers Others follow thelead of competitors The steps involved in segmenting a market in an

Income: For many products income levels can be a sure

discriminator For instance, a ticket to Hawaii is not suitable tosomeone who has low standard of living or low income

Social class: Segmentation by social class is used very

frequently by consumer marketers It will often be used instead

of the income and educational variable since it incorporatesaspects of both, together with additional sociological conceptsabout dividing people into groups There are many levels: A Upper Middle Class, B Middle Class, and C1 Lower MiddleClass, C2 Skilled working Class, D Working Class, E Thosepeople who at the lowest levels of subsistence

- Geographic segmentation

of the company and its products with the market segment or segmentsexhibiting the most suitable needs and priorities This is the process oftargeting which is the next logical step after segmentation

When selecting the most appropriate segments to target, the marketer hasthe broad strategies to choose from

 Mass Marketing: One product for the whole market Sometimes

called undifferentiated marketing this involves selling one product to theentire market, or at least to a very large proportion of it Mass marketinghas to focus on what is similar in the needs of customers rather than onwhat is different and must develop a product and marketing program thataims to appeal to most buyers

 Selective marketing: Several segments targeted with a different

marketing mix offered to each segment A selective marketing strategy will

be followed by most medium and large sized companies It involves

covering several or even all the segments of the market, but in contrast to

mass marketing will offer a different marketing mix carefully designed tomeet the needs of each segment served Most of the large car manufacturerssell a range of models designed to cover most market segments

 Niche marketing: Concentration of the resources on one small part

of the market Often most suited to the strengths of small companies, niche

marketing involves concentrating the organization’s resources on just onesmall segment, or at most a small number of tiny segments These smallsegments are called “niches” Such a strategy makes a lot of sense for smallcompanies for two reasons Firstly, they can concentrate their limited

resources on being one of the best suppliers in a precise market Secondly,many niches are ignored by large companies because they are not

considered to represent a sufficiently worthwhile opportunity The smallcompany may therefore find that it faces less competition from large

companies in carefully chosen niche markets

1 2 3 Working out marketing mix strategies

Services are different from product in marketing strategy because of itsown characteristics In order to manage these features, service marketersshould develop the 7Ps framework Beside product, price, place and

promotion, now we have three more Ps which are people, process, andphysical evidence As marketing in air service is a component part of

marketing services, 7Ps are also applied in marketing strategies

1 2 3 1 Product Strategy

Like manufacturing businesses, good service-providers use marketing toposition strongly in chosen target markets However, as services differfrom tangible products, they often require additional marketing approaches

In a product business, products are fairly standardized and can sit on

shelves waiting for customers But in service business, the customers andfront-line service employees interact to create the service, therefore theskills of the front-line service employees; service production and supportprocesses backing these employees are needed

A product is anything that can be offered to a market for attention,acquisition, use, or consumption that might satisfy a want and need Itincludes physical objects, services, places, organization and ideas Ofcourse, there must be much more to a product than the glib statement

“whatever we sell” According to Theodore Levitt, Typically, product

in air service could be divided into four levels:

 Generic product

Kotler refers to this first product level as the core product or core

benefit which answers the question: What is the buyer really buying? What

is the core benefit the product offer? All the core benefit should be coveredwhen selling product to the customers than merely selling features

 Expected product

The customers not only want the core benefit of the products or servicesbut also expect other additional features from these products and services The customers do not just want a flight to right destination but they alsoexpect a good service, safety, delicious food and an enthusiastic air hostess

 Potential Product

According to Levitt the potential product includes “E verything thatmight be done to attract and hold customers” Even for the most basic andmature of products and services, alert marketers have to discover new ways

of marketing the products or services more attractive to bu yers Successfulcompanies will therefore manage the products or services very carefully

They will appreciate that customers buy holes rather than drills, and thatsome additional benefits must be provided to attract customers in

competitive markets Far sighted air service will therefore put much effortinto research and development because the potential product is the onewhich will be a winner in tomorrow’s markets

1 2 3 2 Price Strategy

The prices should be set according to the level of demand in th e marketplace especially for many services companies since extreme fluctuations indemand can occur Their reaction is usually to adopt a policy of pricediscrimination, charging high prices during periods of peak demand andmuch lower prices during times of slack business Airlines offer greatlyreduced prices during the special occasions in order to encourage people totake their holidays out of season

Price discrimination is practiced by many service businesses Railattracts a lot of businesses with their saver tickets Airlines have standbytickets, which can be sold very cheaply to people who are prepared to waitand take the risk that a sear may not be available

There is one potential problem which can result from the use of theprice discrimination weapon If full price customers begin to feel that theyare being treated unfairly in relation to cut price customers they may decide

to switch to the cut price service or to another service provider where theirstatus will be better preserved In case first class passenger will expect toencounter visible benefits in return for their expensive ticket They willexpect a much higher quality service, failing which they may take theirbusiness to a competing airline

Distributing the product in air service refers to all aspects of the linkbetween the airline, as producers, and the final customers Air services areperishable, and can not be stored for sale later This affects the distribution

of air service, as they must be marketed in a way that minimizes lost

capacities (ex empty seats on the airplane, or a long waiting list) There aretwo types of channel of distribution: direct and indirect distribution Directdistribution involves distributing directly from a supplier to the customers;equally, indirect distribution involves distributing product b y the use of anintermediary

Airlines sometimes sell direct to the retail customer However, mostlythey do not On the passenger side of their business, airlines widely employthe services of travel agents Indeed, in many markets, 80% or more oftickets are sold in this way On the cargo side, most airlines find that

almost all of their capacity is sold through intermediaries known as airfreight forwarders There are various channels of distribution but the mostcommon way is direct dealing with the retail customers which results inobviating the commission

1 2 3 4 Promotion Strategy

The fourth “P” in the marketing mix refers to “promotion”, which is themost visible element in the marketing mix, because advertising and otherpromotional activities are the primary means of communication withtourists in target markets The purpose of promotion is to create and

increase awareness of a business’ products or services and involves

communicating with prospective clients There are two main categories of

promotion: above the line and below the line Above the line (ATL) is an

advertising technique using mass media to promote brands Major the-line techniques include TV and radio advertising, print advertising andinternet banner ads, newspapers, magazines, radio, and outdoor activities This type of communication is conventional in nature and is considered

above-impersonal to customers It differs from Below the line (BTL), which

believes in unconventional brand-building strategies such as direct mail, mail, personal selling, sales promotion, public relations, and trade fairs andexhibitions Each of promotion elements can influence perceived images ofair service

e- Above the line : Advertising

Exhibit 1 1: Thai airways Source: Thai Airways website

Exhibit 1 2: Malaysia airlines Source: Malaysia airlines website

Exhibit 1 3:Virgin Blue Airlines Source: Virgin Blue Airlines website

Advertising is the activity which includes adverts on the television,radio and cinema as well as print adverts in newspapers, magazines anddirectories It also includes roadside posters, usually referred to as “outdooradvertising” Advertising objectives can be classified by their aim: inform,persuade or remind Informative air service advertising is generally used toincrease awareness of new products, features or quantity For example,when an airline open a new route, its management often run full pageadvertisement informing the market about new service

 Below the line

In recent years “below the line” act ivities have been growing at a muchfaster rate than “above the line” advertising “Below the line” includes

many activities such as: Personal selling, Sales promotion and Public

Relations Personal selling involves an interpersonal influence and

information-exchange process There are seven general steps in the

personal selling process: prospecting and qualifying, pre-approach,

approach, presentation and demonstration, handling objections, closing,

and follow-up Personal selling does provide a measurement ofeffectiveness because a more immediate response is received by the

salesperson from the customer Another advantage of personal selling is

that salespeople can shape the information presented to fit the needs of the

customer

Sales promotions are short-term incentives used to encourage

consumers to purchase a product or service There are three basic

categories of sales promotion: consumer, trade, and business Consumer

promotion tools include such items as free samples, coupons, rebates, price

packs, premiums, patronage rewards, point-of-purchase Trade-promotion

tools include discounts and allowances directed at wholesalers and

retailers Business-promotion tools include conventions and trade shows

Sales promotion has several advantages over other promotional tools in that

it can produce a more immediate consumer response, attract more attention

and create product awareness, measure the results, and increase short -term

sales

Public relation is the third promotional tool An organization builds

positive public relations with various groups by obtaining favorable

publicity, establishing a good corporate image, and handling or heading off

unfavorable rumors, stories, and events Organizations have at their

disposal a variety of tools, such as press releases, product publicity, official

communications, lobbying, and counseling to develop image Public

relations tools are effective in developing a positive attitude toward the

organization and can enhance the credibility of a product

1 2 3 5 People Strategy

People are the most important element of any service or experience Services tend to be produced and consumed at the same moment, andaspects of the customer experience are altered to meet the “individualneeds” of the person consuming it Most of us can think of a situationwhere the personal service offered by individuals has mad e or tainted a tour

“P” in air service For instance, British Airways has invested in a majorstaff training program called “Putting People First” Their marketing

research had shown beyond any doubt that staff attitude towards and

treatment of customers strongly affected sales The objective of the trainingprogram was to help staff concentrates on the two most important aspects

of company performance-satisfying the customer and beating the

competition Theodore Levitt puts this in a more erudite way when hestates: “If marketing is about anything it is about achieving customer -getting distinction by differentiating what you do and how you operate Allelse is derivative of that and only that”

Everybody in the organization must focus on giving the customers whatthey want and doing it better than the competition, and in service industriesthis often boils down to the way staff treat customers In service industries

in general even the little things like offering the customers a nice cup offreshly ground coffee whilst they are visiting the solicitor or being

measured for a new suit can make all the difference

1 2 3 6 Physical Evidence Strategy

Physical evidence is the material part of a service Strictly speakingthere are no physical attributes to a service, so a consumer tends to rely onmaterial cues There are many examples of physical evidence, includingsome of the following:

 Packaging

 Internet/ Web pages

 Paperwork ( such as invoices, tickets and dispatch notes)

Some organizations depend heavily upon physical evidence as a means

of marketing communications, for example tourism attractions and resorts(e g Disney World), air service (ex Thai airways, British Airways) parceland mail services (e g UPS trucks), and large banks and insurance

companies (e g Lloyds of London)

Physical Evidence is the element of the service mix which allows theconsumer again to make judgments on the organization If you walk into arestaurant your expectations is a clean and friendly environment On anaircraft if you travel first class you expect enough room to be able to liedown!

Physical evidence is an essential ingredient of the service mix; consumers

will make perceptions based on their sight of the service provision whichwill have an impact on the organizations perceptual plan of the service

1 2 3 7 Process Strategy

Process is another element of the extended ma rketing mix, or 7P’s There are a number of perceptions of the concept of process within thebusiness and marketing literature Process is an element of service that seesthe customer experiencing an organization’s offering It’s best viewed assomething that your customer participates in at different points in time

Booking flight on the Internet-the process begins with you visiting an airline’s website You enter details of your flights and book them Your ticket/booking reference arrives by e-mail or post You catch your flight on time, and arrive refreshed at your destination This is all part of the

marketing process

CHAPTER 2 Assessment of the application of marketing

in air service of Vietnam Airlines

2 1 AN OVER VIEW OF VIETNAM AIRLINES

2 1 1 Vietnam Airlines’ history

The Vietnam Civil Aviation was officially formed on January 15 th, 1956

by a Government decree Stemming from the national military body, its

chief responsibility at the time was to promote economic development in

the North and provide military aid in the South During the first years of

operation, the whole aviation branch of Vietnam owned only several light

and medium turbine prop aircraft such as the IL-1, AN-2 and Aero-45

After 1975, responding to a demand for economic development and

national security, the General Department of Vietnam Civil Aviation was

During the 70s and 80s, the feet of Vietnam Civil Aviation was

furnished with new aircraft such as IL18, DC-6 International route were

also inaugurated, including those to Laos, Cambodia, Malaysia, and

Singapore On April 12 th, 1980, Vietnam Civil Aviation became an official

member of the International Civil Aviation Organization

Vietnam Airlines Corporation was established in April 1993 when 20

other aviation businesses were combined, forming a single entity under the

Civil Aviation Authority of Vietnam Since then, the airline was grown

exponentially It has transformed itself from a small, relativelyinexperienced operator of former Soviet Block aircraft into the proud

owner of a modern fleet of Airbus and Boeing planes flown by highly

trained professionals In 2003, Vietnam Airlines (VNA) rented two Boeing

777-200ER planes and took delivery of the first two of four newly

purchased 777s It also ordered five large Airbus 321s, of which four were

delivered Vietnam airlines now operates 37 aircraft, including six Boeing

777-200ERs, four Boeing 767-300s, six Airbus 321s, 10 Airbus 320s, nine

ATR 72s and two Fokker 70s

As well as expanding and upgrading its fleet, Vietnam Airlines has

invested time and energy into the expansion of the route network From the

early 90s, the airline designed its flights in a hub-spoke network with 3

main connecting cities: Hanoi, Danang, and Ho Chi Minh City VNA now

operates 22 domestic routes between 15 destinations and offer international

connections from Hanoi and Ho Chi Minh City to 38 cities around the

world The airline network is divided into 4 main groups: The Northeast

Asia Group, including flights linking Hanoi and Ho Chi Minh City to

capitals and major cities in Japan, China, South Korea, Hong Kong and

Taiwan, operated with the Boeing 767 and Boeing 777, the ASEAN and

Southern Asia Group, offering flights front Vietnam to Malaysia,

Singapore, Thailand, the Philippines, Indonesia, Russia and Australia

Vietnam airlines also offer flights, through cooperation with other airlines,

to Manila, San Francisco and Los Angeles

In the year 2003 alone, Vietnam airlines expanded network extensively:

it initiated a direct route to Paris from Hanoi and Ho Chi Minh City

(previously, the route involved a transit) and established regular flightsbetween Hanoi and Siem Reap and between Ho Chi Minh City and

Fukuoka In the autumn of 2003, VNA reintroduced flights connectingHanoi with Singapore, and launched routes connecting Hanoi with KualaLumpur and Ho Chi Minh City with Busan in South Korea In January

2004, VNA established new routes between both Hanoi and Ho Chi MinhCity and Frankfurt

Another part of VNA development strategy has been the improvemen t

of the services offered to the customers To this end, VNA has expandedand consolidated its sales network (currently has 28 branch offices andthousands of sales agents around the world) and has joined various globalsales systems like Gabriel II Reservation System, AMADEUS, ABACUS,and IFINI

VNA has worked hard to raise the quality of its in-flight food and services,and to mark the huge changes that its corporation has undertaken over thepast decade, in 2002, VNA took on a new corporate motif, the golden lotus Since the beginning of 2003 VNA has worked with the National

Administration of Tourism and the Ministry of Trade to organize

advertising and promotion activities in many countries, including this year,Germany, Japan and U K

In 2004, Vietnam Airlines carried over five million passengers, ofwhom over 2 8 million flew on our domestic routes and over 2 2 milliontravelled internationally Vietnam Airlines also carried over 77,000 tons ofcargo

The image of the airline has been further reinforced with the launching

of Vietnam Airline’s new corporate identity, the Golden Lotus, in 2002,and the installation of the Airline’s frequent flyer program “Golden LotusPlus” in 2003

Airlines Key

facts-competitive advantages

Competing markets- competitive strategy- tactical marketing International

airlines

Thai airways

Thai Governmentowns 93% stake Fleet of 81medium and longaircrafts made uplargely Boeingand Airbus Asia’s No 7 inrevenues and No

3 in profit E-Business assource ofadvantage The worldbiggest airlinealliance

One of airtravel hubs inSouth East Asia

Low coststrategy

Competing onSouth East Asia,Australia

Highly frequentservices toVietnam

Offer holidaypackage tours toThai destinations Low price

Distributionincludes on-linebooking andticketing offices

Singapore

Airlines

The mostadvanced airlinesowing youngest,most modernfleet

Consistentprofitability Asia’s No 3 inrevenues, but No

1 in profit Winners of manyservice qualityawards as thebest airlines inAsia Pacific and

in the world E-business is asource for

Focusdifferentiationstrategy

Competing onAsia, Australia,Europe, NorthAmerica

Highly frequentservices toVietnam

High Price Distribution viaonline booking,payment andticketing

offices

2 1 2 The status of Vietnam Airlines in the Region

Table 2 1: Vietnam Airlines' competitors

maximizingbusiness andcustomer benefits Member of StarAlliance, theworld’s biggestairline alliance

Cathay Pacific

One of the mostadvanced airlinesowning youngestfleet

Asia’s no 6 inrevenues, and

No 2 in profit One of the 2leading e-airline

in Asia-Pacific (the other is

Singapore) One worldalliance member

Focusdifferentiationstrategy

Daily service toVietnam

Offer extrabenefits via free Distribution viaonline bookingpayment andticketing

Young and modernfleet of 110

aircraft in whichmost of them

under finance andoperation leases

Low coststrategy

Competingroutes: China Highly frequentservice toVietnam

Offer lowincentivespackage tours tochina

Distribution viaonline bookingand ticketingoffices

Korean Air Young and modernfleet of 100

aircraft Fly to 84 cities

in 29 nations Sky team airline

Low coststrategy

Competingroutes: Korea,North America

3 flights/week

alliance member to Vietnam

Distribution viaticketing

offices

Japan Airlines

rd

Ranked 3 inrevenue over theworld

The huge fleet

of 280 aircraft Wide range offlight network,

to 30 countriesand 196 airports

in the world Japan is busyhubs of Asia toAmerica

Focusdifferentiationstrategy

Competingroutes: Japan,North America

3 flights/week

to Vietnam Distributing viaonline bookingticketing andticketing offices

Malaysia

Airlines

Had receivedmany awards forits service Bad affectedsince 1997

MAS’s fleetcomprising 100aircrafts mainlyincluding B747,B777, A330

77 internationaldestinations

Focused low coststrategy

Competitionroutes: NorthEast Asia, Europeand Australia

1 flight/weekservice toVietnam

Distribution viaticketing

Internationaldestinations aremainly in Asia

Focused coststrategy withheavy ticketdiscounting tocounteract withdownturn intravel andtourism toPhilippines Competitiveroutes: SouthEast Asia andAustralasia Daily service toVietnam

Distribution viaonline booking

Air France

Europe’s leadingairlines in terms

of passengercarried

rd

Ranked 3worldwide ininternationalpassengertransport Huge fleet of

363 modern andstreamlinedaircraft SkyTeam airlinealliance member

Focuseddifferentiationstrategy

Competingroutes: Franceand otherEuropean

destinations Medium price Distribution viaonline booking

Qantas

World leadinglong distanceairlines

th

11 largestairlines

worldwide interms of Revenueper kilometers Operate 193aircraft, flying

to 135destinations in

77 nations Proud history ofreliability,

safety,engineeringexcellence andcustomer service

Focusdifferentiationstrategy

Code sharingwith Vietnamairlines

Distribution viaonline booking,payment andGeneral SalesAgent

Fly to 250cities around theworld and operateover 3,600flights daily Offer the lowestfare in domesticroutes

Member of OneWorld

Focus coststrategy

Competing route:America

Own modern andhi-tech

management system

Pacific Airlines

Vietnam Airlineshold 40% stake inthe airline

Currently hold

14 4% domesticmarket

Small fleet of 4short and mediumhaul aircrafts Reputation foron-time domesticservices

Focused coststrategy

Services to hightraffic

destinations Lower prices Distribution viaticketing offices

in big cities andtravel agentnetwork

Sources: Euro monitor 2004, Airlines’ websites, VNAT website, VNA data)

The starting point of Vietnam economy in general and air service in

particular are low and new compared with that of the world Nonetheless,

thanks to its tremendous efforts, fast-moving reforms and by “taking the

short-cut”, VNA has caught up with the general development impetus,

narrowing the gap with the region and the world According to the global

airlines ranking, VNA can be ranked the fifth among ASEAN members,

after Malaysia, Thailand, Singapore and Indonesia Five other members of

the grouping are Brunei, Cambodia, Laos, Myanmar and the Philippines

Vietnam Airlines has set a target of having upper seat in the region in the

next 5 years To achieve this target, the country hopes to serve 10 million

by 2010 throughout a strategically developed network of long haul flights

and local and regional connections With so many changes under its wings,

Vietnam Airlines now looks forward to further integrating in the world of

global aviation and to establish itself as a truly regional air carrier of

Political stability plays an important role in Vietnam’s constant

economic growth in recent years Vietnam has been committed to

strengthening bilateral and multilateral relationships with other countriesand international organizations The country has participated into regionaland international trading blocs such as: AFTA, APEC, and ASEM a ndprepared to enter WTO in the future The Vietnamese Government is alsopushing towards a more and transparent economic system based on the rule

of law These events help Vietnam Airlines attract foreign sightseeing andinvestment into the country Moreover, Vietnam also engaged in bilateraland multilateral aviation and agreements with many countries such as theUS… The war on terrorism assisted in making Vietnam stand out as a safedestination The passengers can put all their faith in Vietnam Airlines,because its air security is currently standing at the top ten nations Finally,the country’s new rule on visa exemption for travelers from ASEAN,Japan, France etc results in increasing number of incoming visitors

 Economic

GDP per capita in Vietnam remained less than USD 500 a year Thus,air travel is too expensive for most Vietnamese However with the economyconstantly growing in the past decade, and is expected to continue in thecoming years, Vietnamese income has increased remarkably by 34% overthe period 1999-2003 According to the Vietnam Airlines’ statistics, theamount of travelers who are inbound or outbound Vietnam has been

remarkably increasing The Vietnamese Government’s efforts to promoteforeign investment and tourism have increasingly attracted internationalvisitors which counted about 2 5 million in 2003 The weakened

Vietnamese currency also made Vietnam more economical destination formany countries such as US, Japan, Australia (VANT website) However,rising fuel costs appear to be a threat to the profitability of the airlines

 Socio-cultural

In term of Socio-cultural, Vietnam Airlines considers many factors,especially if it wants to enter into other nations, to expand its agents inmany countries or to connect airlines with farther nations in all over the

world These factors are: demographics (age, gender, race, family size,

etc ), lifestyle changes, population shifts, education, trends, fads, diversity,

immigration/emigration, health, living standards, housing trends, fashion,

attitudes to work, leisure activities, occupations, and earning capacity By

this way, Vietnam Airlines can select which country it should inter into and

how it can compete with foreign competitors Vietnam is internationally

renowned for its beautiful scenery, culture and history There is also an

increasing number of Vietnamese traveling overseas, mainly to Thailand

and China The community of two million overseas Vietnamese living

mainly in the US, Europe and Australia is a key factor in favor the air

travel inbound or outbound Vietnam ( Vietnam Airlines) Moreover, the

Government has given great support in developing and pushing

socialization of education, science, culture, public health, sport events, etc

More and more training programs coordinated with foreign organizations

especially Australia has brought potential passengers into Vietnam via the

route Vietnam-Sydney, Vietnam-Melbourne Besides, Vietnamparticipation in regional and international cultural activities like ASIAD,

Tiger cup, etc has created opportunities for Vietnam Airlines to get more

passengers

2 2 2 SWOT analysis

2 2 2 1 Strength

 Vietnam Airlines is a national flag carrier run by a management

board reporting to the Vietnamese Prime Minister, thus it is well protected

by the Vietnamese Government for the sake of national pride and interest

 Vietnam Airlines services reflect the Vietnam cultural identity such

as foods, Vietnamese language, the friendliness of cabin crew etc that

Vietnamese travelers are proud of and foreign travelers may wish to

experience

No of

Passengers

Passengers carried by Vietnam Airlines

Total passengers traffic

Market share

 For the last 5 years, Vietnam Airlines enjoyed a fast growth at about

12-16% a year International operation is the main driving force behind this

growth, with an annual growth rate of 18%, compared to that of domestic

market 7%

 Vietnam Airlines was in good financial situation for the last five

years, despite the negative growth in profit in 2003 due the SARS outbreak,

rising fuel costs and weakened Vietnamese Dong

 Vietnam Airline dominates the domestic air travel with 85 6%

market share in 2004 It also holds 40% share of international passenger’s

traffic from/to Vietnam This is a really strength as is takes strong share in

international routes from or to North Asia, South East Asia and Australia

where the market is hotly competitively filled with strong airlines such as

Japan Airlines, Singapore Airlines, and Cathay Pacific

 Vietnam Airlines has become an international airline with 19 branch

offices and thousands of agents worldwide The share of international

market in its business has gradually increased from about 38 6% to 48 3%

of its business The company also have nationwide network of sales office

and sales agents

 Vietnam Airlines has joined ICAO (International Civil Aviation

Organization) and IATA (International Aviation Transport Association) so

that it can cooperate with other airlines to operate code-sharing flights

 Vietnam Airlines has signed co-operative agreements withinternational leading airlines such as JAL, Cathay Pacific, Qantas for joint

services, revenue pooling and interline traffic

Table 2 2: Market Share of Vietnam Airlines

North America 65,209 486,638 13 40%South East

Firstly, the reason that is very easy to see is the weakness of the

supervisory system In our decrees and laws, supervision at state-ownedenterprises is often described by just seven lines compared to hundreds ofpages within entire legal documents The laws generally state that stateemployees and state-owned companies that violate the law are to be

punished under the law

Meanwhile, state-owned corporations operate in an unstable manner Responsibility and powers are not clear between the management board andthe general director Sometimes both sides fight each other Executive

directors said that they have to report everything to management bo ards,

while management boards say they have no real power Secondly, the

domestic tourism market has been developing fast in the past years

however its pace is still unstable whilst the promotion activities to attractforeign tourists has been taken slowly and they are not effective, thus theamount of passengers flying with Vietnam Airlines is considerably

decreased In addition, Fuel provided by the aviation fuel company is three

times as expensive as that of the world price due to high tariff VietnamAirlines’ network is still so small and less well -known It’s partly due to

the high advertising cost Thirdly, in terms of platform and port, Vietnam

Airlines hasn’t had a reasonable design for the passengers Besides, theairlift is not suitable to absolut ely exploit all planes “Delay” situation isone of the main issues need to be overcome

Finally, Vietnam Airlines’ aircrafts are leased and the fleet is small in

term of quantity therefore the flight schedule is not secured and VNA couldnot foresee and prepare for unexpected changes Despite of quite goodservice in flight, it has not come up with the international standard quality While Vietnam Airlines would like to have more air lines to all nations,most of Vietnam air-hostess can only speak English and especially theservice is not good It’s also one of the weaknesses need to be quicklysurmounted

2 2 2 3 Opportunities

Aviation is one of the important economic sectors in Vietnam’s

modernization, especially in the context of its pending accession to theWTO For the last few years, Vietnam Airlines has developed in terms ofscale, speed and growth From now until the end of 2007, one of the keytasks of the company is to open a new direct flight to the United States This flight will be an important means to strengthen and expand

international cooperation by meeting the travel demands of enterprises andoverseas Vietnamese living in the US

Many preparations must be made for the opening of this transoceanicline, including the enhancement of planes Presently, VNA has 38 planes,most of which are modern Boeing and Airbus This number has not metdemands for domestic, regional, and European flights To solve the

shortage of planes, the Prime Minister has approved VNA’s plan to buy tenAirbus 321s and four Boeing 787s He has also allowed the company todevelop a project to buy or hire ten additional Boeing 787 planes, to

research the possibility of purchasing Airbus 350 and to research thepossibility of hiring more Boeing 777-200 ERs These steps take initiative

in meeting the company’s development demand in the 2010 -2020 periods

In its domestic transportation plan, VNA will submit to the Prime Minister

a proposal to buy five more ATR72s for domestic lines

With plans to open a new direct flight to the US and to strongly developits modern aircraft, Vietnam Airlines has been affirming its image in theinternational aviation transportation market, earning the prestigious right to

be the national airline company

In addition, the national flag carrie r has put Vietnam Airlines’ firstleased Boeing 777 into commercial operation on international routes Itlaunched a direct Hanoi-Paris service in June and a non-stop Ho Chi MinhCity-Paris service in July, using Boeing 777s The success of this deal andbusiness cooperation between Boeing and Vietnam Airlines will lureinvestors and business from the US and other nations

2 2 2 4 Threats

The second half of 2003 was fluctuated by events related to control ofthe Airline With the economic slowdown continuing to weaken the traveland tourism industry, consumer demand was further dampened by theglobal terrorist alerts, the worsening situation in Iraq in this year leading tothe eventual war, and at the end of the financial year, the sudden and

devastating outbreak of the Severe Acute Respiratory Syndrome (SARS) inAsia The outlook for the industry was rather uncertain

Vietnam Airlines dominates the domestic market and its only minorcompetitor Pacific Airlines On international routes, Vietnam Airlines has

to compete with world’s leading airlines However, the operations of flightsbetween destinations are bound by aviation agreements between countrieswhich are in favor the national flag airlines (Company interview) Thus, thedetermination of key competitors is narrowing to the narrowly definedsegment i e the specific routes Table 3 summaries the key competitors onkey competing markets with their generic strategies In just over two years,four foreign cheap airlines have conquered Vietnam’s airline ma rket